Denmark - Future trends

Danish manufacturing remains a strong base for growth, especially as
research and development help support its further extension into
high-tech industry. The Danish government's support for the
growing use of Internet services for both businesses and individuals
bodes well for Danish flexibility and responsiveness to global market
trends. Public investment in education, particularly in relation to
computers and computing, also supports prospects for growing
computer-related services.

Unemployment has been reduced for the present, but the main mechanism
was to shrink the size of the work-force through early-retirement plans
and state-funded sabbaticals. A smaller workforce drives wages up,
raising production costs for many Danish businesses, which makes them
less competitive internationally. This has affected Denmark's
balance of payments
, which has even dipped into negative territory in recent years. It is
not clear what effect this will have on the economy, but if the
government can manage to strike a balance, keeping
inflation
and interest rates low without hurting industrial competitiveness, then
a small deficit may be an acceptable price to pay.

Denmark's greatest challenge for the future is due to its aging
population. Its welfare and social security system will be severely
strained by the demands of the growing population of elderly people and
the shrinking work-force and sources of tax revenues. If nothing is
changed, Denmark will not be able to maintain the standard of benefits
it currently grants to its citizens. As most Danes are fiercely
supportive of state guarantees of a standard of living, any government
attempting to reduce those guarantees faces hostility and resistance.
The current government has made some changes in the labor market
(reducing and altering some benefits and pensions), but it is unclear
how much the public in the highly-unionized workforce will stand for
reductions in benefits or wages. The governing coalition must tread
carefully if it is to make changes without seeming to compromise its
commitment to material equality.

In October of 2000, Danes voted not to join the last stage of the
European Monetary Union, and to keep its own currency. Despite the
urging of Prime Minister Poul Rasmussen, the Danish public did not
support the euro. However, the krone is still closely tied to the euro,
and Denmark's economic decisions, particularly monetary ones,
will be heavily influenced by the EU. Resistance to the EMU has been
made more on political grounds than economic ones. There is some fear
that opting out of the EMU will hurt prospects for foreign investment,
which in the previous 5 years had increased dramatically in Denmark. The
current government has demonstrated its friendliness to business by
lowering corporate taxes and other business taxes, which may help to
counteract any possible flight of investment. It is too soon to tell if
either effect has come to pass.